US Dow minimises oil, gas exposure, looks to state-run JVs

11 March 2010 23:10[Source: ICIS news]

HOUSTON (ICIS news)--Dow Chemical is minimising its exposure to the volatility of feedstock oil and gas prices through an emphasis on alternative energy sources and petrochemical joint ventures with government-run companies, the chief executive of the largest US producer said on Thursday.

“Two-thirds of our company is much more independent from oil and gas input – biology and material sciences, solar shingles, these new businesses are a long way from that volatility,” chief executive Andrew Liveris said.

“The one third of our company that still buys 1m bbl/day equivalent of crude is our last physical hedge,” he added.

Liveris said Dow Chemical was focused on joint ventures with nation-states looking to grow their countries’ petrochemical industries.

“We want partners who really believe that we will provide great jobs for their nation - through an education in science, learning the right skills, and allowing our franchise, in turn, to grow,” Liveris said.

Liveris spoke at the CERAWeek 2010 energy conference in ?xml:namespace>Houston.

The chief executive cited several Dow investments in Kuwait as well as its Ras Tanura project with Saudi Aramco to build an industrial petrochemical complex as examples of that strategy.

“You need government policy, but you also need intelligent intervention,” Liveris said in explaining his company’s draw to joint ventures with state-run institutions.

Liveris said the strategy originated in 2001 and 2002, when the company closed on its acquisition of Union Carbide and more heavily exposed it to the volatility of natural gas and ethylene prices.

He said 2003 and 2004 “were interesting years, from shutting down plants to resizing all of our operations”.

Since 2004, however, the company has sought to distance itself as much as possible from such feedstock volatility - allowing it to close on its acquisition of Rohm and Haas in 2009, even in the midst of the global economic recession.

“We at Dow don’t count on the recovery,” Liveris said. “And we’re running 2010 like we ran 2009. We don’t rely on the rhetoric.”

Even so, Liveris said he did expect 2010 to be better than 2009.

“It already is,” he said. “We’re still in the middle of restocking, I think. True demand will come back, but we don’t know when. I would say we see signs of progress everywhere except the US and Europe.”

Liveris noted that the US was still a vital market to his company, adding that an optimistic case could be made for annual US GDP growth at 3% or higher by 2011.

That GDP outlook was largely shared by a panel of economists in another afternoon session, which cautioned, however, that expectations had slightly lowered in recent months.

Elsewhere, the Dow chief said he was excited by the recent surge in US natural gas supplies, but said both pricing conditions and government policies would need to be proven successful over a longer time frame before Dow would consider increasing its reliance on those supplies.